Planned carbon tax faces serious hitches

One of the big announcements in Wednesday’s budget was the further delay in a new tax that could have harsh consequences for industry — the carbon tax.

Photo: Sasol

We heard in last year’s budget speech that the tax was being delayed by a year to allow time for more consultation and the alignment of the tax with work by the Department of Environmental Affairs.

It appears that not enough of this has taken place, forcing another delay, probably with final details being announced only in next year’s budget.

Finance Minister Nhlanhla Nene is unlikely to upset many companies if he holds off a bit on this measure, which is highly unpopular, except among its devoted fan base in the green movement. However, the potential damage will be enormous if this tax descends on industry, which is already reeling under the effects of Eskom power cuts, a disturbing fall in confidence among investors and a volatile labour market.

The concept of a carbon tax may look quite simple, but a lot of detail sits behind it. We think the government initially underestimated how complicated it can be when you get into the detail, and the potential effects are enormous on large energy users and carbon emitters such as oil, steel and cement producers and Eskom itself. Officials seem to have not yet done all the required technical work, and the response from industry seems to have been far stronger than expected.

Our understanding is that the government still believes this tax is a last resort. While it may be imperative to reduce carbon emissions, and the National Treasury would relish the extra multibillion-rand income stream, the government would bring in a carbon tax if other ways could be found to bring down carbon emissions.

The timing of the planned carbon tax is not great, with load shedding already placing a huge burden on industry. The problem is that there are not a lot of viable alternatives to the carbon-intensive electricity grid.

Although we are seeing more moves towards renewable energy and alternative energy resources, and while industry understands we need to reduce greenhouse gas emissions, there are limited alternatives and not enough incentive to change. Some believe the carbon tax will create this incentive to change.

So industry is being dealt a double whammy — a looming carbon tax, and it is also being load shed, and this means growth is limited.

Since 2009 SA has wanted to take a leadership role in climate change, but there is some concern that we are a developing country and we have other challenges. Our industries rely on fossil fuels, and until we can incentivise them and offer alternatives, it is premature to push through a carbon tax. Even so, companies would be wise to prepare for the worst.

If they are not already doing so, companies must measure their carbon footprint. Using this footprint, companies can then quantify their carbon tax liability, which allows them to understand the effects of a carbon tax on their operations and to start to investigate their options.

Companies should also start to understand the potential to access higher tax-free thresholds or rebates and what this would cost, and to start understanding what other incentive and grant opportunities exist.

Even if the carbon tax never comes, all these measures are worthwhile at a time when there is more and more emphasis on energy security and cost.

We welcome the draft carbon tax bill that will be introduced later this year for a further round of public consultation, allowing more time for careful thought and consideration. We must preserve the planet, but not at the cost of a crippled industrial sector and a further brake on economic growth.

Co-authored by Duane Newman and Joslin Lydall, originally published in BusinessDay Live on the 26th February 2015 available here.

Commenting area

The *science* of Carbon forcing of climate change is far from settled. As for “taking a leading role in climate change” this is nothing but pandering to the *green machine* or keeping up with the Joneses.

As a Third World country, South Africa should focus rather on a plentiful supply of cheap energy to enable industry to grow the economy. We have plentiful natural resources with which to do this. Gas still an unknown at this stage. European, particularly Germany, is finding out just how expensive renewable energy sources are, now with one of the most expensive, not so reliable, rates per MWh. This has forced them to begin exploiting *dirty* lignite reserves.

Our pollution issues from burning coal can be managed, but using First World ideas without the wealth to implement them properly is an immense drag on the economy. Especially with a massive proportion of unemployed and high levels of poverty, poor education. These can only be addressed by economic growth. Cheap energy is the key to this. Deal with that, hold fire on crazy taxes like Carbon Tax, keep an open mind about the politicisation of anthropological climate forcing and we may get somewhere as a country